Friday, October 26, 2007

Why P&G wins?

Since the small stutter in 1999-2000, which led to the resignation of the then CEO (Durk Jager), P&G has been on a roll delivering stellar growth quarter after quarter.Here is an ex-Proctroid’s take on what has been driving this performance.

1. Better and more “real” Brands : Brands have been re-interpreted and rejuvenated. The laser like focus on narrowly defined functional benefits has been supplanted by a broader emotional/life context to the brand, without diluting the importance of product superiority. In my view, they are not fully there on this front ( more on that in another blog soon), but still a huge change vs the past.

2. Faster and efficient innovation: Technical product Innovation is faster and at times out-sourced. Refer P&G connect and develop (C&D) program. P&G calls this change, from R&D to C&D. Commercial innovation, innovation that doesn’t involve any product reformulation or package change, has also bloomed.

3.Adapting to new Media and new consumer dynamics: In response to media fragmentation, new ways of effectively and efficiently connecting with the consumers have been developed and then institutionalized in the usual P&G manner. Word of Mouth, Consumer advocacy, Shopper marketing, Digital/web to name a few. Research has also evolved and there is more immersion , ethnographic and anthropological type of research to uncover finer insights. Online research is also being used. See a good example of using the web for Folgers Coffee here.

4. Leveraging design: The importance of design has been recognized and P&G was perhaps the first packaged goods company to have a Global head of design. The results are clear to see on the shelf. Check out the new Head and Shoulders graphic and bottle shape when you visit the supermarket next.
5. Stronger portfolio: Some great brands and businesses - WELLA, GILETTE, HERBAL ESSENCES, CLAIROL, IAMS to name a few- have been acquired and integrated well within the portfolio. Its a pity they couldn’t buy NIVEA due to the vagaries of German corporate law.

6. Superior customer relationships: P&G has perhaps handled the demands and pressures of the big retailers better than other CPG companies, driven by superior customer understanding and sharper shopper insights. They use the brain bank instead of the cheque book approach with big retailers like Wal Mart.

7. Winning where it matters: The lead in key growth geographies like China has been maintained and there is momentum in the India business where P&G has struggled historically against Unilever.

8. Lean supply chain costs : P&G was one of the pioneers of the ECR ( efficient consumer response) model and a lean supply chain has been key to ensuring right pricing, margins and speed to market.

The one point which quite often gets over-looked when discussing P&G’s success is its ability to institutionalize and roll out new best practices and processes. This is an important element in their success because the strategic changes which P&G has implemented are not unique. All FMCG companies have attempted the same ( e.g. Unilever’s Path to Growth ) kind of transformation . So why has P&G executed the same strategy better ?

My view :

1. Talent : The quality of people within the company has always been strong as P&G recruits rigorously. It is a strong meritocracy. It also invests a lot in development. This has generated a strong pipeline of leaders who are also outstanding thinkers/thought leaders.

2. Common language and culture: The presence of a common language, enabled and nurtured by the no lateral recruitment policy, and a strong corporate culture makes change management and wider buy-in to changes less painful.

3. Strong belief in facts and data: Data/facts matter much more than opinions. This culture of “fact” based decision making ensures people embrace the new practices and processes with lot more confidence than what I have seen in or heard about other FMCG companies. People are in general not cynical about new global guidelines. Also P&G measures and course corrects better than most. The research department in P&G is a true powerhouse.